Alain Bokobza, head of global asset allocation at Societe Generale, says the US 10-year yield at 5.5% is a critical threshold: higher borrowing costs would outstrip earnings growth and begin to press equity valuations. He notes sizable global earnings upgrades this year have so far prevented a collapse in equity risk premia and that equities are not pricier than at the start of the year, but 5.5% is the level where further earnings revisions would likely be insufficient to sustain current valuat

Alain Bokobza, head of global asset allocation at Societe Generale, says the US 10-year yield at 5.5% is a critical threshold: higher borrowing costs would outstrip earnings growth and begin to press equity valuations. He notes sizable global earnings upgrades this year have so far prevented a collapse in equity risk premia and that equities are not pricier than at the start of the year, but 5.5% is the level where further earnings revisions would likely be insufficient to sustain current valuations. Bokobza expects forthcoming Fed and ECB hikes to be modest and not aggressive enough to break the cycle or fully allay inflation concerns. J.P. Morgan’s Grace Peters and Barclays’ Emmanuel Cau have flagged a 5% 10-year yield as a psychologically significant level that could prompt stress in equity markets.